Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

NEW LAW TIP: BUYING A FIXER-UPPER? FIX IT YOURSELF

October 02, 2003

The bonus depreciation rules of the new tax law reward the "do-it-yourselfer." While used equipment is ineligible for the 50% first-year bonus depreciation, purchasers of used equipment can take bonus depreciation on costs they incur to make it fit for service. If they buy the used equipment with the refurbishing already completed and included in the purchase price, the whole unit is considered "used" equipment, and no bonus is available, under IRS regulations issued last month.

Example: Casey buys a used locomotive for his railroad for $200,000 in September, 2003. He spends another $50,000 in his shop rebuilding its electric motors before year-end. He can take bonus depreciation on the $50,000, and his total depreciation deduction for the rebuilding costs in 2003 is $28,571.

If Casey instead paid $250,000 to buy the locomotive with the rebuild work already completed, he would get no bonus depreciation on the $50,000 rebuild cost built into the purchase price; his 2003 deduction for the rebuild price would be only $7,143.

      Bookmark: del.icio.us • Digg • reddit